DETROIT – Predictions that Social Security retirement benefits could head for a 6.2% increase in 2022, thanks to an increase in inflation, could lead some baby boomers to think they have a reason to wait less to claim benefits.
After all, those who claim retirement benefits will receive more money next year. Why not rush to claim 62 or 63 now if you want to make some money? Well, experts warn you might want to rethink this one.
Social Security retirement benefits are becoming a hot topic as we hear more about a future high cost of living adjustment next year.
The cost of living adjustment, known as COLA, was only 1.3% in 2021 – increasing the average benefit by about $ 21 for monthly payments and making one of the lowest increases. lowest ever since 1975, when Social Security introduced the automatic annual cost of living. subsistence allowances.
What awaits us in 2022?
Next year we’ll be talking about real money.
Some retirees might consider an additional $ 100 per month, based on an average monthly Social Security retirement payment of $ 1,655.71 in July.
We won’t know the official cost of living adjustment for 2022 until the Social Security Administration makes this announcement in October. The percentage is determined after the US Bureau of Labor Statistics released the September Consumer Price Index.
Any increase due to COLA will show up in checks and direct deposit benefits paid in January.
Right now, it looks like the cost-of-living adjustment will be around 6.2%, according to the Senior Citizens League, a non-partisan group dedicated to protecting and strengthening Social Security benefits.
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Why the rise in Social Security?
Oddly enough, much of that higher payment can be attributed to a shocking spike in gasoline prices, according to the group.
Under current law, social security benefits are adjusted using the consumer price index for urban wage earners and office workers. The Senior Citizens League notes that the index reflects the spending habits of active young adults who drive a lot, not retirees.
As a result, according to the group, the index is more heavily weighted for gasoline prices, which have risen 41.8% in the past 12 months.
A potential increase of 6% is quite unusual after low inflation. But there have been other years of high increases in COLA.
By comparison, other important inflation adjustments for Social Security included: 5.8% for payments in 2009, 5.4% in 1991, 7.4% in 1982 and 11.2% in 1981. The most sharp increase was 14.3% in 1980, according to Social Security data.
No adjustment to the Social Security cost of living was made in 2016, 2011 and 2010.
Should we jump on the retirement train?
If you’re planning to retire, an estimated 6% increase in COLA could make you throw in the towel at work and claim Social Security benefits at 62. But here’s why you don’t want to do it.
Mary Beth Franklin, a renowned author who specializes in elucidating the intricacies of Social Security, says she has heard some financial planners wonder if now is the right time to claim benefits now to lock in this eye-catching adjustment to the cost of life.
And she discovered something that most people don’t know.
His view is that anyone aged 62 or over in 2022 and eligible for Social Security will benefit from COLA next year, even if they have not yet applied for benefits.
“I’m concerned that some people are rushing to claim Social Security this year to take advantage of the exceptionally large cost-of-living adjustment expected next January,” Franklin told me by email.
“I’m sure most people don’t realize that they will automatically get COLA next year – even if they haven’t applied for Social Security yet – as long as they’re at least 62 years old. or higher in 2022, “said Franklin, who wrote” Maximizing Social Security Benefits, “an online book available for $ 29.95 at MaximizingSocialSecurityBenefits.com.
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If there are future inflation adjustments, she noted, those who are 62 and over would see inflation adjustments built into future payments each year until they claim benefits until. ‘at the age of 70.
She points out that the Social Security Administration notes: “You are entitled to increases in cost of living allowances from the year you are 62 years old. This is true even if you do not receive benefits until you reach full retirement age or even 70 years old. “
You can start receiving Social Security benefits as early as 62, but you get a much lower monthly payment if you apply for benefits well before reaching full retirement age.
Those who turn 62 next year and beyond also face another problem.
Anyone born in 1960 or later has a full retirement age of 67. (If you were born on January 1, you will refer to the previous year.)
In the past, the full retirement age was 65. But it has gradually increased.
It increased to 66 years for people born between 1943 and 1954. It increased to 66 years and two months for people born in 1955 and later. It gradually rises in two-month increments and reaches 66 years and 10 months for people born in 1959.
For those who turn 62 in 2022 and beyond, the retirement benefit is reduced by 30% – or $ 300 on a monthly payment of $ 1,000 – if that group claims at 62 instead of 67. Each year that you wait past 62, you get a higher payout amount.
The Social Security Administration has said it adds cost-of-living increases to your benefits from the year you turn 62. And benefits could then be adjusted each year to reflect any increase in the cost of living as measured by the Consumer Price Index. .
This is great news for some baby boomers who have yet to retire or claim Social Security retirement benefits.
The cost-of-living adjustment will of course provide additional liquidity to retirees and the elderly who are already receiving social security retirement benefits.
But Franklin also warns that retirees aged 65 and over should beware of increases in Medicare Part B premiums, which are expected to increase in 2022 and could erode some of Social Security’s COLA increases.
Part B covers outpatient and diagnostic services. Its monthly premium, deducted from Social Security benefits, changes each year. Franklin said the amount of the premium increase would be known in November.
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Ways to look at social security
People can apply up to four months before they want their Social Security retirement benefits to begin. When they are ready to apply for retirement benefits, they can use the online retirement application at SSA.gov.
Laurence Kotlikoff, professor of economics at Boston University, said he was very concerned that inflation will continue to be higher in the years to come.
If inflation persists, he said, many people would be better off waiting for social security after age 62 to ensure that more of their old-age income is protected against inflation.
“Inflation should make you more inclined to be patient when you buy social security,” said Kotlikoff, president of Economic Security Planning, which offers an online tool called “Maximize My Social Security” for $ 40 a year for the details.
Kotlikoff said that even without inflation concerns, waiting to bring Social Security closer to age 70 is the “best move a mile for about three-quarters of households.”
He said the inflation-adjusted benefit at age 70 is 76% higher than at age 62.
If prices rise, he said, waiting for Social Security to approach full retirement age offers about 7.6% coverage for each year of waiting.
Kotlikoff, co-author of “Get What’s Yours – the Secrets to Maxing Out Your Social Security Benefits,” notes that people may tend to live longer than they thought and that delay as much as possible in claiming benefits. social security can be both a hedge against inflation and longevity.
Rushing to take a step based solely on Social Security headlines might end up being exactly the wrong thing for some in their early sixties.
Follow Susan Tompor on Twitter: @trickster.
